Practical Law

Most construction contracts will try to ensure that variation instructions are given in writing. But laying down a hard and fast rule can be difficult since employers often want the flexibility to give oral instructions in certain situations. As a result, construction contracts will often fudge the position, such that it can be unclear whether a variation can be instructed orally. This is especially the case when the contract incorporates a confirmation of verbal instruction (CVI) procedure.

If an employer refuses to pay for a variation because there is no written instruction, the contractor needs to review carefully  the contract to establish precisely what is required for a variation and whether an oral instruction is sufficient.

Judicial interpretation of written instruction clauses

It is unusual for contracts to adopt oral instructions as the primary procedure for ordering variations. However, while most construction contracts refer to written instructions, they often refer to an option to instruct verbally. The question then arises as to whether, on the correct interpretation of the contract provisions, an oral instruction is sufficient. The Court of Appeal’s judgment in Ministry of Defence v Scott Wilson Kirkpatrick is a case in point.

The MOD had hired a contractor to replace the roof at its dockyard. The specification referred to the roof tiles being fixed using nine inch nails but the employer’s supervising officer (the contract administrator) had a discussion on site with the contractor and agreed that four inch nails should be used instead. After the works were completed the roof blew off and had to be replaced:

• The employer argued that the works were not in accordance with the contract specification and therefore the contractor was liable for the damage.
• The contractor argued that the supervising officer had formally varied the scope, such as to require it to use the four inch nails instead.

The case turned on whether the oral instruction to change the nails was a valid contract variation.

The contract was based on a standard form GC Works that, at the time, was commonly used for public works. The relevant clause read:

“7(1) The Contractor shall carry out and complete the execution of the Works to the satisfaction of the SO who may… issue further… details… instructions and explanations (all of which are hereafter referred to as “the SO’s instructions”) in regard to the variation… of the Works…

7(2) All SO’s instructions shall be given in writing in the manner prescribed by the Authority. If any of the SO’s instructions issued orally have not been confirmed in writing by him such confirmation shall be given upon reasonable request…”

The contractor was successful since the Court of Appeal found that clause 7 allowed for oral variation instructions.

The employer sought to emphasise the first sentence of clause 7(2), but the court found that this wording had to be balanced against the second sentence of 7(2) (which contemplates that oral instructions would be given), along with clause 7(1) (which required the contractor to follow such instructions as issued by the supervising officer). As a result, the Court of Appeal concluded that the contract allowed instructions to be given orally, such that the verbal direction to change the nails amounted to a valid contract variation.

Confirmation of verbal instruction (CVI)

The confusion over the form an instruction must take will often be exacerbated by incorporating a CVI process into the contract. The typical model for such a provision will state that the contractor may write to the contract administrator following a verbal site instruction, such that the contractor’s written confirmation, or CVI, will then stand as the formal instruction unless contradicted within a specified period.

The difficulty for contract drafters concerns the status of the verbal instruction in the meantime. If the contractor is obliged to follow the verbal instruction then, as in Ministry of Defence v Scott Wilson Kirkpatrick, this may well indicate that oral variations are valid. On the other hand, if the verbal instruction has no status under the contract (unless and until confirmed), then the contract administrator may, from a practical perspective, find it more difficult to direct works on site. These two approaches can be illustrated by looking at the way in which the JCT and FIDIC standard form contracts rise to the challenge.

Illustration of CVI clauses by reference to JCT and FIDIC

Clause 3.12.1 of the JCT Standard Building Contract with Quantities, 2011 Edition (SBC 2011) reads:

“Where the… Contract Administrator issues an instruction otherwise than in writing, it shall be of no immediate effect but the Contractor shall confirm it in writing to the… Contract Administrator within 7 days, and, if he does not dissent by notice to the Contractor within 7 days from receipt of the Contractor’s confirmation, it shall take effect as from the expiry of the latter 7 day period.”

Importantly, therefore, an oral instruction has “no immediate effect”. It is only transformed into a formal instruction, which the contractor then has to comply with, following written confirmation and the contract administrator’s failure to contradict that confirmation. As is clear from the clause, this process can take up to 14 days. In the meantime the oral variation instruction has no validity.

Clause 3.3 of the FIDIC Red Book 1999 reads:

“The Contractor shall comply with the instructions given by the Engineer… Whenever practicable, their instructions shall be given in writing. If the Engineer…

(a) gives an oral instruction,
(b) receives a written confirmation of the instruction, from… the Contractor, within two working days after giving the instruction, and
(c) does not reply by issuing a written rejection and/or instruction within two working days after receiving the confirmation,

then the confirmation shall constitute the written instruction of the Engineer…”

The clause indicates that instructions can be oral or written. While it states that instructions shall be given in writing whenever practicable, it expressly contemplates that they may also be given orally.

While the JCT contract provides that the contractor is not obliged to comply with an instruction until the CVI procedure has been operated, the position is quite different under the Red Book. The FIDIC clause expressly states that the contractor shall comply with all instructions the engineer gives. Since the clause contemplates that an instruction may be given orally, then the obligation to follow instructions must also apply to those given orally.

The oral instruction conundrum

While FIDIC’s Red Book contains a CVI procedure, via which an oral instruction is confirmed in writing, it is not apparent what the consequences are if that procedure is not followed. After all, an oral instruction is valid such that the contractor has to comply with it. Under clause 13.1 of the Red Book, the engineer may unilaterally order variations by issuing an instruction. However, as we have seen, an instruction may be oral. This appears to give a contractor room to claim payment for a variation that has been instructed orally, even if the CVI procedure has not been followed.

Such an outcome could easily be avoided if the contract stated that all variations must be instructed in writing and that an oral instruction was invalid unless and until the CVI procedure was operated, as per the JCT clause. However, such an approach brings its own problems. The contractor would then be under no obligation to comply with an oral site instruction. It could effectively choose which site instructions to comply with, by exercising its discretion to operate, or not operate, the CVI procedure.

Evidential value of a CVI

Even though, strictly speaking, many contracts will allow variations to be instructed orally, it is important for a contractor to follow a CVI procedure so that it can prove that the change has been requested. If the employer subsequently denies the change was asked for, the CVI can then be relied on to establish it, as a matter of fact.

Importantly, however, in such circumstances, the CVI is not required as a condition precedent to payment under the contract but as a piece of evidence to prove the oral instruction was given. As has been said on many occasions, good records are the basis of any successful claim.

Next time

The last two posts in this series on variations have concerned the form of communication that needs to be given in order to instruct variations, be they written or oral. This issue will often be of particular concern to a contract administrator, who will want to ensure that the instruction process is closely controlled so as to avoid variations being ordered that the employer has not first approved.

In the next post in this series, I will consider in more detail the nature and extent of a contract administrator’s liability when it oversteps the mark and orders changes that the employer has not agreed to.